**Telephone:** +44 (0)20 7920 9128**Email:** [email protected]**Web:** www.barbicanconsulting.co.uk

This Interest Rate Heding course is designed for sales teams selling interest rate derivatives. The purpose of the course is to improve technical understanding in order to facilitate derivative hedging solutions for customers. The workshop will use selected internal transactions in order to demonstrate how the bank's systems price, report and manage these trades. The course will cover the following:

- Yield curve construction & zero coupon discount factors
- How discount factors are used to price transactions
- Using swaps to hedge both assets & liabilities
- Valuation techniques & cancellations
- Market risk measures, what they are, how they work, their strengths & weaknesses
- Currency swaps and their use
- Interest rate options, pricing and the "Greeks"
- An introduction to credit default swaps, what they are, how they work & their use
- Collateral management, why it is increasingly important for over-the-counter derivatives

Below is a summary of the Interest Rate Hedging course. The content has been placed in a logical sequence and addresses the products, mechanics, methodologies, practical uses and risks. Time has been allotted for the appropriate discussion. The recommended maximum number for this workshop is 10.

**Basic financial mathematics**

- Discount factors, present / future value
- Construction of the zero coupon model
- Case study

**Generic interest rate swaps**

- Spot starts
- Interest payments Ann./SA/Q/M
- Forward starts
- Amortising/accreting/rollercoaster structures
- Case study

**Liability swaps**

- Hedging floating rate debt
- New issues, (overview)
- Case study

**Asset swaps**

- Selecting bonds
- Calculating margins
- Premium / discount structures
- Case study

**Swap valuation**

- Mark-to-market
- Basis point value
- Case study

**Market risk measures**

- Duration
- Basis point value, (DV01)
- Hedge ratios & trades

**Market risk measures cont.**

- Strip hedges/stack hedges
- Convexity
- Value at risk
- Case study

**Futures & FRAs**

- Using futures to hedge
- Discount factors & futures
- Convexity bias
- Case study

**Currency swap structures**

- Fixed / fixed
- Fixed / floating
- Basis swaps
- Using currency swaps
- Credit usage
- Case study: private placement/balance sheet hedging

**Interest rate options**

- The models used for pricing
- What affects price
- The Greeks, delta, gamma, theta, vega
- Delta hedging and the problems
- Case study: Callable swap, extendable collar

**Credit derivatives**

- An introduction to credit default swaps
- How CDS are used
- Case study

**Collateral & swaps**

- How & why credit risk occurs with swaps
- Risk mitigation techniques
- The advantages of collateral support agreements

14th October 2009

Gap reports show you the interest rate risk you are running in your balance sheet. They put the assets and liabilities into time buckets in accordance with their interest rate repricing. From this simple approach you can obtain a table or graph of the risk being run. This normally includes a profit and loss figure that results from moving the yield curve. Gap limits are also applied in order to keep the interest rate exposure within risk tolerence. Gap reports aren't new; they are widely used and have both strengths and weaknesses. Let's find out more.

20th September 2009

When two parties agree to enter an interest rate swap (IRS) one party pays a fixed rate of interest and the other a variable rate. The variable rate is often referenced to Libor or Euribor. The interest payments are based on a notional amount, (with IRS no principal amount changes hands). In the market there are conventions for calculating the interest payments. For example USD IRS use an annual actual 360 interest rate calculation for the fixed payment and a quarterly or semi annual actual 360 calculation for the floating payment. Maturities are normally between 2 and 20 years but it is possible to trade swaps that have maturities exceeding 50 years. Customers using swaps to hedge can expect a dealer to quote a dealing spread. The dealer will want to receive a higher fixed rate than the one they pay. It's one way the dealer makes money from trading. Dealers will insist before trading that the appropriate documentation is signed. For swaps standard documentation is provided by the International Swaps and Derivatives Association (ISDA). This document is called a master agreement. It covers all swaps between the two parties. Individual transactions are then agreed by confirmation which refers to the master agreement.